LTC Legislation

LEGISLATIVE SUPPORT AND ENDORSEMENTS

The option to convert a life insurance policy to pay for long term care is the legal right of every policy owner in the United States.

Notification laws are being introduced and passed to make sure people are informed that converting a life insurance policy into a Long Term Care Benefit Plan is their right and an accepted part of a Medicaid spend-down. Twelve states (as of March 1, 2014) have introduced “Policy Conversion Consumer Disclosure” legislation to educate policy owners about the Life Care Funding option to remain private pay and to codify the Long Term Care Benefit Plan structure (based on Life Care Funding) that would protect the funds and ensure that it would only be used to pay for long term care services in: California, Florida, Kentucky, Louisiana, Maine, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Texas, and Washington. Texas and Kentucky are the first states to enact this important consumer disclosure legislation into law.

The Federal Government and all 50 states are looking for ways to cut back on exploding Medicaid budgets. One of the top priorities is to encourage more use of private pay dollars for Homecare, Assisted Living and Skilled Nursing through the conversion of a life insurance policy into a Long Term Care Benefit Plan.

States are introducing these laws because they are realizing the importance of unlocking the hidden value in life insurance policies before the owner allows it to lapse or surrender. The point of the new law is to make sure people know they have the legal right in every state to use their life insurance to pay for long term care and it establishes two key consumer protection measures:

Grants authority to the Medicaid department to inform and educate citizens that they can convert life insurance policies into a Medicaid qualified Long Term Care Benefit Plan to remain private pay and choose any form of long term care they want instead of abandoning a policy to go straight onto Medicaid.

To qualify, the Long Term Care Benefit Account must be an irrevocable, FDIC insured account that makes payments directly to the care provider; the person must be able to choose the form of care they want; a funeral benefit must be preserved; and if there is any unpaid account balance when the person dies it must go to the designated account beneficiary.

The Long Term Care Benefit has also been endorsed by the Assisted Living Federation of America (ALFA) and the American Health Care Association (AHCA), Medicare, Florida AARP, and Legislative leaders across the country.

What are political leaders and consumer advocates saying about using a life insurance policy to pay for Long Term Care?

“I believe it could be a win for Medicaid service recipients, a win for the fiscal soundness for Medicaid, it could be a win for potential beneficiaries under life insurance policies and I think it could be a win for long-term care service providers,” said Jack McRay, a spokesman for the Florida AARP.

“Texas is the first state to enact this important legislation to stimulate more private pay dollars by encouraging the conversion of a life insurance policy into a private market Long Term Care Benefit Plan,” said Rep. Rob Damron (KY), “but they are not the only state to recognize the importance of making sure that the owners of a life insurance policy are informed of their right to convert their policy as an alternative to abandoning the policy and going directly onto Medicaid. We introduced this consumer rights legislation in Kentucky and expect passage during next year’s 2014 legislative session.”

“It saves the state money, because otherwise you would just cash in the value of the life insurance and get $5,000 or something, and go on the Medicaid roll immediately,” Texas Rep. Craig Eiland, a Galveston Democrat who introduced the bill in the Texas House, told the Journal. “The policyholder benefits because he has cash he can direct to his own care and expenditures.”

“Right now life insurance policies are being abandoned, so the senior can receive Medicaid. If this consumer disclosure law passed, both the state and the policy holder would benefit. It’s pretty innovative. … It should be a win-win all the way around,” said Rep. Jimmy Patronis (R-FL).

“Our goal at Emeritus is to ensure that seniors are properly cared for, and part of that goal is to help families with the financial decisions and details involved in caring for their loved ones,” said Jayne Sallerson, Executive Vice President at Emeritus Senior Living. “Many seniors and families are unaware that their life insurance policies are valuable assets and can be used in this way, and as a result some let active policies lapse. We hope that we can help educate seniors about their resources, so that more seniors can have access to the long term care that they need.”

“One of the biggest challenges families face when moving into a long term care facility is the monthly expenses. For millions of seniors with a life insurance policy, they now have an option available to convert a portion of the death benefit into a benefit that can cover these costs. The current economic conditions have compounded the problems some families face when it comes to paying for the costs of senior living or long term care. Most people do not realize that a life insurance policy is an asset that they are legally entitled to convert into another form of coverage,” said Ron Aylor, Senior Vice President at Brookdale Senior Living. “The Life Care Benefit Plan gives people a quick and simple option to convert a life insurance policy’s death benefit into a life care benefit and immediately apply it toward covering the costs of long term care residing in a Brookdale community.”

“Converting life insurance policies into a Long Term Care Benefit Plan is a Medicaid qualified spend down, it is being written into laws across the country, and all Long Term Care providers the benefit plan as a way to help pay for their services,” said David Kitaen, CLTC, the first Long Term Care Insurance agent in the United States, “The Life Care Benefit is designed to address immediate needs quickly. Advisors need to be informing clients that if they have a life insurance policy they should not abandon them but instead hang onto the policy because they can convert it when they have a need to help pay for assisted living, home healthcare and nursing home care. I have helped my clients with this solution.”

“This creates a way for individuals to fund some long-term care costs from the proceeds of the sale of their life insurance,” said Lifeline Program President and CEO Wm. Scott Page. “Currently, they have to surrender their policies and receive nothing in return. Under the new law, many individuals will receive thousands of dollars that they can use to pay private medical providers of their choosing for long term care. It’s groundbreaking legislation.”

“Most over 65 have still not purchased LTC Insurance when they should have, or could not medically qualify to get coverage. They now have to pay for Long Term Care out of their life savings. Far too many seniors let their very valuable $100,000 to $500,000 Life Insurance Policies lapse.I recently had a call from a 82-year-old man from Napa, California who could not get a Long Term Care Insurance Policy for himself,” explained Valerie VanBooven RN, BSN. “He explained that he was now in a wheel chair, and was being cared for at home by his two adult children. I asked if he had a Life Insurance Policy. He said that he had a $200,000 Life Insurance Policy, but “that won’t help, it only pays when I die.” He told me that because the premiums were now so high, about $8000 per year, he had not paid his premium in a while, and that it had probably lapsed. We were able to save the Life Insurance from lapsing, by about one week. We converted The Death Benefit, to a Long Term Care Benefit Plan Account. Instructions are to send a Monthly check to the Home Care Providers. Now, the man no longer has to pay the $8000 annual Life Insurance Premium, his Home Care Agency gets a regular Monthly check, his adult children are relieved of Care responsibilities, and they don’t have to sell the house to pay for care. If he should die before all the money is used, what is left from the Conversion goes back to his estate.

“While the features of a Medicaid life settlement might be aimed at smaller policies, their owners, rather than those that are more affluent, represent a large and underserved segment of the population,” said Robin S. Weinberger, CLU, ChFC, CLTC. “When family members can’t or don’t want to buy the policy, a Medicaid life settlement could provide an important option for these policy owners and, at the same time, benefit the taxpayers who are footing the bill for Medicaid. With all these advantages, it is no wonder more and more states are considering Medicaid life settlement laws. There is one important exception to Revenue Ruling 2009-13, however, which is likely to apply to many Medicaid life settlement transactions. Under IRC Section 101(g), proceeds paid to a terminally or chronically ill insured may qualify as death proceeds and escape taxation entirely.”

Legislative/Regulatory History:

In 2009, Conning & Company released a research paper about the evolution of the life settlement industry. In it, they specifically analyzed the growing use of converting life insurance policies to pay for long term care services. They surmised that there would be an alignment of interests between owners of life insurance policies, providers of long term care services and state governments to find ways to encourage the use of the full market value of a life insurance policy to pay for long term care as an alternative to the lapse or surrender of a policy to go onto Medicaid. “What is new is the concerted effort to integrate life insurance policies and long term care providers. This is a recent development involving – Life Care Funding. This new source of funds represents a potential alignment of long term care providers and state governments. Both state governments and the long term care industry are working to find a solution to the budgetary threat to Medicaid created as aging Baby Boomers impoverish themselves in order to have the state pay for long term care.”

In 2014, Conning & Company released a follow up study focusing on the growing market for using life insurance policies to pay for long term care. In this paper they cited Life Care Funding as the acknowledged pioneer of this approach: “Life Care Funding has been pioneering the use of life settlements in the long-term care market for several years. That effort appears to have paid off. One indication of how the partnership between a life settlement group and the assisted living company can work is seen in Emeritus Senior Living, a major assisted living care company. Its website explains how life insurance can help fund the cost of care.”

In 2010, NCOIL unanimously passed the Life Insurance Consumer Disclosure Model Law. Conversion of a life insurance policy to a Long Term Care Benefit Plan is one of the approved options in the Model Law. “It is imperative that policy holders understand that they have alternatives to merely lapsing or surrendering their policy. The model would require a clear notice to consumers… including conversion to long term care.” NCOIL President Rob Damron (KY)

In 2011, Connecticut introduced study bill SB-1153 as “an act establishing a task force to study life insurance policy and annuity conversions and the provision of certain notifications by life insurance companies”.

In 2012, Hawaii passed study bill, SB-2455 to “establish a task force to assess and make recommendations regarding the use of viatical settlements and accelerated death benefits as means of funding long-term care”.

In 2012, Louisiana passed study bill SCR-66, “To establish an advisory work group within the Department of Insurance to examine options that may be available to allow an insured under a life insurance policy or contract holder of an annuity to fund long term care benefits.”

In 2012, the state of Florida passed HB 5001, to “to examine methods to allow an insured under a life insurance policy or the contract holder of an annuity, to convert the policy or annuity to a long term care benefit. The agency shall submit a report of findings and activities of the workgroup, including recommendations and proposed legislation, no later than January 15, 2013.”

In 2012, Florida State University Center for Economic Forecasting and Analysis released study analyzing the cost savings of policy conversions to pay for Long Term Care “scored” at $150 million annually. Florida State University Center for Economic Forecasting and Analysis, Scoring Medicaid Savings of HB 1055: Conversion of Life Insurance Policies to Long Term Care Benefit Plans in Florida, published January, 2012

In January 2013, Florida Agency for Health Care Administration (AHCA) releases legislative report and bill language to Florida Legislature recommending use of life insurance policies to defray costs of Medicaid.

By 2014, twelve states had introduced “Policy Conversion Consumer Disclosure” legislation to educate policy owners about this option to remain private pay and to codify the Long Term Care Benefit Plan structure (based on Life Care Funding) that would protect the funds and ensure that it would only be used to pay for long term care services in: California, Florida, Kentucky, Louisiana, Maine, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, Texas, and Washington. Texas is the first to enact the legislation into law.

Legislative Advocacy to develop the Consumer Disclosure Law:

Life Care Funding has worked with the National Conference of Insurance Legislators (NCOIL), the Florida Medicaid Department, the Florida and Texas Health Care Associations, AARP, the insurance industry, and the life settlement industry led by Coventry First and LISA to develop this private pay funding option to provide important consumer protections and ensure that it is recognized as a Medicaid Qualified spend-down. Since 2010, Life Care Funding has testified before NCOIL, the state legislatures of Florida, Texas, Maine, a special joint meeting of the New Jersey Medicaid and Insurance Departments, and provided expert testimony before legislative workgroups in Florida and Louisiana. Life Care Funding has published numerous studies and spoken across the country about the importance of making sure the owner of a life insurance policy understand that they are better off converting it into a Long Term Care Benefit Plan instead of lapsing or surrendering their policy to go directly onto Medicaid.